Open Joint Stock Company

Unaudited interim condensed consolidated financial statements

For the six months ended 30 June 2012

Open Joint Stock Company Russian Helicopters

Unaudited interim condensed consolidated financial statements

For the six months ended 30 June 2012

Contents

Statement of management’s responsibilities for the preparation and approval of the interim condensed consolidated financial statements for the six months ended 30 June 2012 ...... 1

Report on review of interim condensed consolidated financial statements ...... 2

Interim condensed consolidated financial statements for the six months ended 30 June 2012:

Interim consolidated statement of comprehensive income ...... 3 Interim consolidated statement of financial position ...... 4 Interim consolidated statement of changes in equity ...... 5 Interim consolidated statement of cash flows ...... 7

Notes to the interim condensed consolidated financial statements ...... 8

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Report on review of interim condensed consolidated financial statements

To the shareholder of Open Joint Stock Company Russian Helicopters

Introduction

We have reviewed the accompanying interim condensed consolidated financial statements of Open Joint Stock Company Russian Helicopters and its subsidiaries (“the Group”), comprising the interim consolidated statement of financial position as at 30 June 2012 and the related interim consolidated statements of comprehensive income, changes in equity and cash flows for the six-month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34, Interim Financial Reporting (“IAS 34”). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Emphasis of matter

Without further qualifying our conclusion, we draw attention to Note 1 and Note 21 to the accompanying interim condensed consolidated financial statements, which indicate that the Government of the Russian Federation is the ultimate controlling party of the Group and the Group has significant transactions with parties, related by means of common control and ownership by the Government of the Russian Federation. Accordingly, the Government of the Russian Federation exercises direct and indirect influence over financial position of the Group, the results of its financial performance and its cash flows.

28 September 2012

A member firm of Ernst & Young Global Limited

Open Joint Stock Company Russian Helicopters

Interim consolidated statement of comprehensive income

In millions of Russian Roubles

For the six For the six months ended months ended 30 June 2012 30 June 2011 Notes (unaudited) (unaudited)* Revenue 8 60,292 42,369 Cost of sales (36,228) (25,023) Gross profit 24,064 17,346

Selling, general and administrative expenses (16,879) (11,696) (Impairment)/reversal of impairment of property, plant and equipment 10 (24) 97 Government grants 39 55 Other operating expenses, net (766) (343) Operating profit 6,434 5,459

Finance income 127 131 Finance costs (2,307) (2,019) Share in results of associates (4) (208) Foreign exchange gain, net 401 573 Profit before income tax 4,651 3,936 Income tax expense 9 (1,569) (1,229) Profit for the period 3,082 2,707 Attributable to: Shareholder of the Company 2,968 1,841 Non-controlling interests 114 866 3,082 2,707 Other comprehensive loss Revaluation of available-for-sale investments (25) – Total comprehensive income for the period net of tax 3,057 2,707 Attributable to: Shareholder of the Company 2,945 1,841 Non-controlling interests 112 866 3,057 2,707 Earnings per share Weighted average number of ordinary shares (including effect of split of the Company’s ordinary shares) 94,994,000 94,994,000 Basic and diluted earnings per share 0.00003 0.00003

* The comparative information for the six months ended 30 June 2011 reflects adjustments made in connection with the completion of provisional accounting (refer to Note 7).

The notes on pages 8 to 27 are an integral part of these interim condensed consolidated financial statements. 3 Open Joint Stock Company Russian Helicopters

Interim consolidated statement of financial position

In millions of Russian Roubles

30 June 31 December 2012 2011 Notes (unaudited) (audited)* Assets Non-current assets Property, plant and equipment 10 40,504 38,787 Goodwill 11 1,076 1,076 Other intangible assets 12 6,253 4,797 Investments in associates 32 35 Trade receivables 478 188 Prepayments and other receivables 1,969 2,337 Other financial assets 13 150 150 Available-for-sale securities 14 877 935 Deferred tax assets 294 289 51,633 48,594 Current assets Inventories 15 27,885 25,860 Amounts due from customers under construction contracts 11,406 6,391 Trade receivables 7,937 7,475 Prepayments and other receivables 17 33,969 31,708 Income tax receivable 667 270 Other taxes receivable 8,543 6,949 Other financial assets 13 1,193 872 Cash and cash equivalents 16 10,486 12,036 102,086 91,561 Total assets 153,719 140,155 Equity and liabilities Capital and reserves Share capital 95 95 Additional paid-in capital 8,567 8,414 Retained earnings and other reserves 17,181 13,948 Attributable to the shareholder of the Company 25,843 22,457 Non-controlling interests 2,689 2,291 28,532 24,748 Non-current liabilities Loans and borrowings 19 40,069 35,142 Obligations under finance leases 276 348 Retirement benefits liability 413 370 Provisions 182 311 Deferred tax liabilities 2,590 2,400 43,530 38,571 Current liabilities Loans and borrowings 19 22,291 19,318 Obligations under finance leases 247 232 Amounts due under the Military Purchase Program construction contracts 20 15,362 13,795 Amounts due to customers under construction contracts 10,501 10,986 Trade payables 4,962 5,462 Advances received and other payables 25,300 22,950 Income tax payable 896 1,463 Other taxes payable 1,150 1,670 Provisions 948 960 81,657 76,836 Total liabilities 125,187 115,407 Total equity and liabilities 153,719 140,155 * Certain amounts do not correspond to the consolidated financial statements as at 31 December 2011 and for the year then ended and reflect reclassifications made as detailed in note 3. The notes on pages 8 to 27 are an integral part of these interim condensed consolidated financial statements. 4 Open Joint Stock Company Russian Helicopters

Interim consolidated statement of changes in equity

For the six months ended 30 June 2011

In millions of Russian Roubles

Equity attributable to the shareholder of the Company Share Additional Retained Non-controlling Notes capital paid-in capital earnings Total interests Total

Balance at 31 December 2010 95 8,414 12,084 20,593 9,594 30,187 Profit for the period – – 1,841 1,841 866 2,707 Other comprehensive income dividends – – – – (426) (426) Increase in ownership in subsidiaries: OAO Kazan Helicopter Plant – – (1,701) (1,701) (2,672) (4,373) OAO – – 168 168 (1,217) (1,049) OAO Arsenyev Aviation Company PROGRESS – – (244) (244) 388 144 OAO – – (22) (22) 22 – Balance at 30 June 2011 (unaudited)* 95 8,414 12,126 20,635 6,555 27,190

* The comparative information for the six months ended 30 June 2011 reflects adjustments made in connection with the completion of provisional accounting (refer to Note 6).

The notes on pages 8 to 27 are an integral part of these interim condensed consolidated financial statements. 5 Open Joint Stock Company Russian Helicopters

Interim consolidated statement of changes in equity (continued)

For the six months ended 30 June 2012

In millions of Russian Roubles

Equity attributable to the shareholder of the Company Revaluation of available-for- Non- Share Additional Retained sale controlling Notes capital paid-in capital earnings investments Total interests Total

As at 1 January 2012 95 8,414 13,948 – 22,457 2,291 24,748 Profit for the period – – 2,968 – 2,968 114 3,082 Other comprehensive loss for the period – – – (23) (23) (2) (25) Dividends 18 – – (489) (489) (70) (559) Increase in ownership in subsidiaries: 7 OAO Reductor PM 7 – – 126 – 126 (171) (45) Decrease in ownership in subsidiaries: OAO Arsenyev Aviation Company PROGRESS 7 – – 17 – 17 34 51 OAO Kamov 7 – – 302 – 302 (166) 136 Assets contributed to the Group’s subsidiaries by OAO OPK : OAO Kumertau Aviation Production Enterprise 7 – 153 – 153 – 153 Unexercised and expired put options granted to the holders of non-controlling interests in: OAO Arsenyev Aviation Company PROGRESS 7 – – 55 – 55 104 159 OAO Kazan Helicopter Plant 7 – – 277 – 277 555 832 As at 30 June 2012 (unaudited) 95 8,567 17,204 (23) 25,843 2,689 28,532

The notes on pages 8 to 27 are an integral part of these interim condensed consolidated financial statements. 6 Open Joint Stock Company Russian Helicopters

Consolidated statement of cash flows

In millions of Russian Roubles

For the six months For the six months ended 30 June 2012 ended 30 June 2011 Notes (unaudited) (unaudited)* Operating activities

Profit for the period 3,082 2,707 Adjustments for: Income tax expense 9 1,569 1,229 Finance income and costs, net 2,180 1,888 Depreciation and amortisation 10,12 2,134 1,411 Impairment/(Reversal) of impairment of property, plant and equipment 10 24 (97) Foreign exchange gain, net (401) (573) Change in allowance for doubtful accounts receivable (50) 19 Write-down of inventories 340 – Movements in retirement obligations 24 (5) Loss on disposal of property, plant and equipment 565 151 Share in results of associates 4 208 9,471 6,938 Movements in working capital: Increase in inventories (2,365) (3,876) Increase in amounts due from customers under construction contracts (5,015) (7,909) (Increase)/decrease in trade receivables (113) 3,365 Increase in prepayments and other receivables (1,887) (5,901) Increase in other taxes receivables (1,594) (849) Decrease in trade payables (771) (860) Increase in advances received and other payables 5,514 4,081 Decrease in amounts due to customers under construction contracts (485) (1,393) Increase in amounts due under the Military Purchase Program construction contracts 20 1,567 5,107 Increase in provisions and other employee benefit obligations 322 273 Decrease in other taxes payable (520) (551) Cash generated from operations 4,124 (1,575)

Interest paid (3,935) (2,195) Government grants – compensation of finance costs 2,168 14 Income tax paid (2,348) (1,886) Net cash generated from/(used in) operating activities 9 (5,642)

Investing activities Purchases of property, plant and equipment 10 (3,609) (3,042) Proceeds from disposal of property, plant and equipment 23 130 Purchases of intangible assets 12 (2,016) (1,636) Government grants compensation of capitalised development costs 244 330 Loans provided (14) (382) Loans repaid 6 110 Purchases of other financial assets (855) (1,700) Proceeds from sale of other financial assets 572 – Interest received 127 131 Net cash used in investing activities (5,522) (6,059)

Financing activities Proceeds from loans and borrowings 23,215 30,814 Repayments of loans and borrowings (15,500) (24,040) Principal repayments of obligations under finance leases (323) (232) Acquisitions of non-controlling interests in subsidiaries 7 (3,531) (5,093) Contribution in share capital of the Group’s subsidiaries from OAO OPK Oboronprom 51 – Dividends paid to non-controlling shareholders 16 (204) Net cash generated by financing activities 3,912 1,245

Net decrease in cash and cash equivalents (1,601) (10,456) Effect of exchange rate changes on balance of cash held in foreign currencies 51 (237) Cash and cash equivalents at beginning of the year 12,036 17,957 Cash and cash equivalents at 30 June 10,486 7,264 * The comparative information for the six months ended 30 June 2011 reflects adjustments made in connection with the completion of provisional accounting (refer to Note 7) and reclassifications made as detailed in Note 3. The notes on pages 8 to 27 are an integral part of these interim condensed consolidated financial statements. 7 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements

In millions of Russian Roubles, unless otherwise stated

1. General information

Open Joint Stock Company Russian Helicopters (the “Company”) was established on 9 January 2007 as a wholly-owned subsidiary of OAO OPK Oboronprom (“Oboronprom”), a Russian state-controlled aerospace holding company. The Company was founded with the aim to fully consolidate, manage and commercialise the Russian helicopter industry, which had remained fragmented since the disintegration of the Soviet Union. In December 2010, the Company became the legal holding company of all entities as detailed below.

The Group is the producer of civil and military helicopters and military missile systems and includes engineering centres and production plants which produce the full spectrum of helicopters under the Mi, Ka and Ansat brands. The Group products are sold in the Russian Federation and internationally. The most significant production, engineering and service operations of the Group are incorporated within the Russian Federation.

The head office of the Company is located at: 12 Krasnopresnenskaya naberezhnaya, Moscow, 123610, Russian Federation.

The entities included in the Group are as follows: Effective ownership interest and voting rights, % 30 June 2012 31 December 2011 Entity and its location Nature of business (1) (2) (1) (2)

Group subsidiaries OAO Kazan Helicopter Plant (Kazan) Producer of helicopters: Mi-8, Mi-17, Ansat 81.0 81.3 80.2 80.5 OAO Rostvertol (Rostov-on-Don) Producer of helicopters: Mi-24, Mi-26, Mi-28, Mi-35 92.1 92.0 92.1 92.0 OAO Ulan-Ude Aviation Plant (Ulan-Ude) Producer of helicopters: Mi-8, Mi-17 100.0 100.0 84.8 84.8 OAO Kumertau Aviation Production Producer of helicopters: Enterprise (Kumertau) Ka-28, Ka-31, Ka-32, Ka-226 100.0 100.0 100.0 100.0 OAO Arsenyev Aviation Company Producer of helicopters: Ka-50, Ka-52, PROGRESS (Arseniev) producer of military missile systems 93.4 93.4 93.1 93.1 OAO MIL Moscow Helicopter Plant Engineering centre (Moscow) (for helicopters brand Mi) 74.8 80.7 74.8 80.7 OAO KAMOV (Moscow) Engineering centre (for helicopters brand Ka) 94.5 99.8 99.8 99.8 OAO Stupino Machine Production Plant Producer of helicopter allied products (Stupino) (for helicopter brands Mi and Ka) 61.1 80.5 61.2 80.5 OAO Reduktor-PM (Perm) Producer of helicopter allied products (for helicopter brands Mi and Ansat) 88.2 88.2 80.8 80.8 ZAO Ulan-Ude Blade Plant (Ulan-Ude) Producer of helicopter allied products (for helicopter brand Mi) 100.0 100.0 84.8 84.8 OAO Helicopter Innovation Industrial Producer of helicopter allied products Company (Ulan-Ude) (for helicopter brand Mi) 100.0 100.0 84.8 84.8 OAO Novosibirsk Aircraft Repair Plant Helicopter repair and maintenance (Novosibirsk) services (for helicopter brand Mi) 95.1 95.1 95.1 95.1 OAO Helicopter Service Company (Moscow) Supplier of materials and spare parts 100.0 100.0 100.0 100.0 ZAO Avia Company Rostvertol Avia Helicopter services supplier 92.1 92.1 92.1 92.1 OOO Purchase and logistic center Supplier of materials and spare parts 100.0 100.0 – –

Group associates ZAO Activnye Operatsyi (Moscow) Holding company 49.0 49.0 49.0 49.0 ______(1) Effective ownership interest (2) Voting rights

Details of changes in ownership are described in Note 6. 8 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

2. Basis of preparation and changes to the Group’s accounting policies

Statement of compliance

The interim condensed consolidated financial statements for the six months ended 30 June 2012 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2011.

Each enterprise of the Group individually maintains its own books of accounts and prepares its statutory financial statements in accordance with the Regulations on Accounting and Reporting of the Russian Federation. The accompanying Financial Statements are based on the statutory records and adjusted and reclassified for the purpose of fair presentation in accordance with International Financial Reporting Standards (“IFRS”).

Basis of presentation

The interim condensed consolidated financial statements have been prepared on the historical cost basis except for:

► Mark-to-market valuation of certain classes of financial assets in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

New standards, interpretations and amendments thereof, adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2011, except for the following amendments to IFRSs adopted by the Group, that did not have any significant impact on the accounting policies, financial position or performance of the Group:

IAS 12 – Deferred Tax: Recovery of Underlying Assets (Amendment)

This amendment to IAS 12 includes a rebuttable presumption that the carrying amount of investment property measured using the fair value model in IAS 40 will be recovered through sale and, accordingly, that any related deferred tax should be measured on a sale basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time, rather than through sale. Specifically, IAS 12 will require that deferred tax arising from a non- depreciable asset measured using the revaluation model in IAS 16 should always reflect the tax consequences of recovering the carrying amount of the underlying asset through sale. Effective implementation date is for annual periods beginning on or after 1 January 2012.

IFRS 7 – Disclosures – Transfers of Financial Assets (Amendment)

The IASB issued an amendment to IFRS 7 that enhances disclosures for financial assets. These disclosures relate to assets transferred (as defined under IAS 39). If the assets transferred are not derecognised entirely in the financial statements, an entity has to disclose information that enables users of financial statements to understand the relationship between those assets which are not derecognised and their associated liabilities. If those assets are derecognised entirely, but the entity retains a continuing involvement, disclosures have to be provided that enable users of financial statements to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognised assets. Effective implementation date is for annual periods beginning on or after 1 July 2011 with no comparative requirements. 9 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

2. Basis of preparation and changes to the Group’s accounting policies (continued)

IFRS 1 – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendment)

When an entity’s date of transition to IFRS is on or after the functional currency normalisation date, the entity may elect to measure all assets and liabilities held before the functional currency normalisation date, at fair value on the date of transition to IFRS. This fair value may be used as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position. However, this exemption may only be applied to assets and liabilities that were subject to severe hyperinflation. Effective implementation date is for annual periods beginning on or after 1 July 2011 with early adoption permitted.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

3. Restatement of Financial Statements for the year ended 31 December 2011

As described in Note 20 the Group’s subsidiaries entered into long-term contracts with the Ministry of Defence to produce and deliver military helicopters. In its consolidated financial statements for the year ended 31 December 2011 the Group presented the outstanding amounts under the related credit line facilities as liabilities secured by the Russian Federation within non-current liabilities, according to their maturity, and amounts of trade receivables and amounts due under construction contracts from the Ministry of Defence within non-current assets.

As the credit line facilities are linked to the helicopters construction contracts and are automatically and not at discretion of the Group, settled as funds are transferred from the Ministry of Defence under construction contracts, the proceeds from such credit lines represent, in substance, advances received.

Therefore, at 30 June 2012, the management of the Group changed its approach to presentation of the outstanding amounts under the credit line facilities secured by the Russian Federation and of trade receivables and amounts under construction contracts due from the Ministry of Defence. The Group included the net balance of the credit lines; trade receivable and the amount due under construction contracts related to Military Purchase Program into current liabilities (refer to note 20). The comparative information as of 31 December 2011 has been revised to reflect the new presentation as follows: As previously 31 December 2011 reported Restatement As restated

Trade receivables, non-current 9,763 (9,575) 188 Amounts due from customers under construction contracts, non-current 4,358 (4,358) – Total non-current assets 62,527 (13,933) 48,594 Amounts due from customers under construction contracts, current 9,402 (3,011) 6,391 Total current assets 94,572 (3,011) 91,561 Total assets 157,099 (16,944) 140,155 Liabilities secured by the Russian Federation 30,739 (30,739) – Total non-current liabilities 69,310 (30,739) 38,571

Amounts due under the Military Purchase Program construction contracts – 13,795 13,795 Total current liabilities 63,041 13,795 76,836 Total equity and liabilities 157,099 (16,944) 140,155

10 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The judgements, estimates and assumptions applied by the Group in this interim condensed consolidated financial statements are not significantly changed from those applied by the Group in its consolidated financial statements as of and for the year ended 31 December 2011.

The Group performs impairment tests with respect to the non-financial assets of its cash generating unit involved in production of helicopters under Ka brand. The recoverable amount is calculated using the discounted cash flow model which is most sensitive to the the favourable, for the Group, outcome of certain ongoing tendering processes to produce helicopters under Ka brand for local and foreign customers which the management currently estimates to be probable. The negative outcome, if any, of these tenders could affect the recoverable amount of the property, plant and equipment of KUMAP and related intangible assets and result in impairment loss.

5. Currency exchange

Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured in that functional currency. The functional currency of the Company and its subsidiaries registered and operating on the territory of the Russian Federation is the Russian Rouble (“RUB”). Transactions in currencies other than the functional currency (“foreign currencies”) are recorded at the exchange rates prevailing at the dates of the transactions. At each reporting date monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at that date. Non-monetary items carried at historical cost are translated at the exchange rate prevailing on the date of transaction. Non-monetary items carried at fair value are translated at the exchange rate prevailing on the date on which the most recent fair value was determined. Exchange differences arising from changes in exchange rates are recognised in the statement of comprehensive income/(loss).

Exchange rates for the currencies in which the Group transacts were as follows:

As at As at 30 June 31 December 2012 2011

Closing exchange rates at the year end – RUB 1 U.S. Dollar (“USD”) 32.82 32.20 1 Euro 41.32 41.67

Average exchange rates for the period – RUB 1 USD 30.57 28.63 1 Euro 39.63 40.17

11 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

6. Segment information

The Group has three reportable segments, the results of which are reported on a quarterly basis and reviewed by the General Director of the Company (the “chief operating decision maker” or “CODM”). These internal reports are prepared on the same basis as the accompanying interim condensed consolidated financial statements.

The reporting segments are as follows:

► Helicopters segment includes manufacturing of helicopters;

► Services and support segment includes manufacturing of spare parts for helicopters and providing of helicopter repair and maintenance services;

► Research and development segment includes the provision of research and development works mostly related to helicopter engineering and design.

In addition, the Group has various other operations that are not reported separately and has certain corporate costs that are not included in the reportable segments.

These are included as reconciling item between the total reportable segments and the consolidated results.

Segment revenues

The following is the analysis of the Group’s revenue for the six months ended 30 June 2012 and 2011:

Six month ended 30 June 2012 Six month ended 30 June 2011 Military Commercial Total Military Commercial Total Helicopters 44,353 2,974 47,327 25,374 6,810 32,184 Services and support 5,462 3,839 9,301 3,351 3,244 6,595 Research and development 53 236 289 131 17 148 Other 2,614 761 3,375 2,721 721 3,442 Total 52,482 7,810 60,292 31,577 10,792 42,369

The segment revenue reported above represents revenue generated from external customers only. During the six months ended 30 June 2012 and 2011, inter-segmented sales were RUB 7,386 million and RUB 5,231 million, respectively. Inter-segment revenue primarily consists of sales of semi- products and research and development services for helicopters production.

Segment operating results

The measure of segment profitability separately reported to the CODM for purposes of allocating resources and assessing segment performance is measured based on segment adjusted EBITDA, which the Group defines as segment operating profit adjusted to exclude depreciation and amortisation, loss on disposal of property, plant and equipment and loss on/(reversal of) impairment of property, plant and equipment and to include the segment’s share of results of associates. Since adjusted EBITDA is not a standard measure under IFRS, the Group’s definition of adjusted EBITDA may differ from that of other companies.

12 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

6. Segment information (continued)

Segment operating results (continued)

The following represents the analysis of operating results measured by adjusted EBITDA and its reconciliation to the operating profit/(loss) and profit/(loss) before tax for the six months ended 30 June 2012 and 2011:

Six months Six months ended ended Adjusted EBITDA 30 June 2012 30 June 2011* Helicopters 7,303 4,332 Services and support 2,490 2,057 Research and development (863) (228) Other 223 555 Total adjusted EBITDA 9,153 6,716

Depreciation and amortisation (2,134) (1,411) Loss on disposal of property, plant and equipment (565) (150) (Impairment)/reversal of impairment of property, plant and equipment (24) 97 Share of results in associates 4 208 Operating profit per IFRS financial statements 6,434 5,460

Finance income 127 131 Finance costs (2,307) (2,019) Share in results of associates (4) (208) Foreign exchange gain, net 401 573 Profit before income tax per IFRS financial statements 4,651 3,937

* The comparative information for the six months ended 30 June 2011 reflects adjustments made in connection with the completion of provisional accounting (refer to Note 7)

Major customers

During the six months ended 30 June 2012 and 2011, The Group’s most significant customers are state-controlled bodies, such as the Ministry of Defence and the Ministry of Emergency Situations of the Russian Federation. The Russian Federation state-controlled entities represent significantly more than 10% of the Group’s consolidated revenue for each of the periods presented. Please also refer to Note 8 for further details in regard of other largest customers and countries where they are located.

Other segment information

Substantially all assets and production, management and administrative facilities of the Group are located in the Russian Federation. Geographical asset information is not reported to the CODM and accordingly is not presented as part of segmental information.

Revenue by geographical regions is disclosed in Note 8.

13 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

7. Business combinations and changes in ownership

Increase in ownership during the six months ended 30 June 2012

OAO Reduktor-PM (“Reduktor”)

On 23 January 2012, the Company acquired additional 500 ordinary shares of Reduktor for cash consideration of RUB 45 million. As a result of the transaction the Group’s effective ownership in Reduktor increased from 80.8% to 88.2%. The excess of the non-controlling interests acquired over the value of the consideration paid was recognised as increase in retained earnings in the amount of RUB 126 million.

OAO Ulan-Ude Aviation Plant (“Ulan-Ude”)

On 25 November 2011, in accordance with the Russian Federal Law on Joint Stock Companies the Company made a mandatory offer of RUB 81 per ordinary share to acquire the remaining non- controlling interests in Ulan-Ude. As of 31 December 2011, under the offer the Company recognised a liability in the amount of RUB 3,295 million for buy-out of 40,577,867 ordinary shares of Ulan-Ude. At 30 June 2012 the Company fully acquired the non-controlling interests in Ulan-Ude.

Decrease in ownership during the six months ended 30 June 2012

OAO Arsenyev Aviation Company PROGRESS (“Progress”)

On 27 March 2012, Progress completed the issue of additional 11,827 ordinary shares at RUB 4,295 par value which were acquired by Oboronprom for cash consideration of RUB 51 million. As a result of the transaction the Group's effective ownership in Progress decreased from 94.3% to 93.4% and retained earnings increased in the amount of RUB 17 million.

OAO Kamov (“Kamov”)

On 26 March 2012, Kamov completed the issue of additional 76,404,515 preference shares at RUB 1.78 par value which were acquired by Oboronprom for cash consideration of RUB 136 million. As a result of the transaction the Group's effective ownership in Kamov decreased from 99.8% to 94.5% and retained earnings increased in the amount of RUB 302 million. On the date of additional issue of the shares accumulated deficit of Kamov was RUB 3,100 million, as result of the transaction non-controlling interest decreased by RUB 166 million.

Assets contributed to the Group’s subsidiaries by OAO OPK Oboronprom

OAO Kumertau Aviation Production Enterprise (“KUMAP”)

On 29 March 2012, KUMAP completed the issue of additional 46,340 ordinary shares at RUB 3,301 par value which were acquired by Oboronprom for cash consideration of RUB 153 million. At 26 June 2012 Oboronprom and the Company signed a legally binding agreement that the acquired shares of KUMAP will be contributed to the Group in exchange of additional 279,116 Company’s ordinary shares. Consideration of RUB 153 million paid by Oboronprom for the ordinary shares of KUMAP was reflected as an increase in additional paid-in capital during the six months ended 30 June 2012. The legal procedure of increase of share capital was completed in September 2012.

14 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

7. Business combinations and changes in ownership (continued)

Unexercised and expired put options granted to the holders of non-controlling interests

OAO Arsenyev Aviation Company PROGRESS (“Progress”)

On 18 October 2011, in accordance with the Russian Federal Law on Joint Stock Companies, the Company made a mandatory offer of RUB 4,770 per ordinary share to acquire the remaining non-controlling interests in Progress, effective for the period 18 October 2011 – 26 June 2012. As of 31 December 2011, under the terms of the mandatory offer the Company recognised a liability in the amount of RUB 226 million for buy-out of 47,548 ordinary shares of Progress.

On 30 March 2012, under the mandatory offer the Company acquired additional 13,038 ordinary shares of Progress for consideration of RUB 67 million. As a result of the transaction the Group's effective ownership in Progress increased from 93.1% to 94.2%. As of 30 June 2012 the remaining liability of RUB 159 million related to unexercised and expired portion of mandatory offer (put option) was derecognized; the excess of RUB 55 million of the derecognised liability over the re-instated non-controlling interests of RUB 104 million increased the Company’s retained earnings.

OAO Kazan Helicopter Plant (“KHP”)

On 26 December 2011, in accordance with the Russian Federal Law on Joint Stock Companies, the Company made a mandatory offer of RUB 108 per ordinary share to acquire the remaining non-controlling interests in KHP, effective for the period 26 December 2011 – 20 March 2012. As of 31 December 2011, under the terms of the offer the Company recognised a liability in the amount of RUB 3,246 million for buy-out of 30,000,002 ordinary shares of KHP.

On 20 March 2012, under the mandatory offer the Company acquired additional 1,144,684 ordinary shares of KHP for cash consideration of RUB 124 million. As a result of the transaction the Group's effective ownership in KHP increased from 80.2% to 81.0%.

On 17 April 2012, in accordance with the Russian Federal Law on Joint Stock Companies, the Company made a mandatory offer of RUB 108 per ordinary share to acquire the remaining non- controlling interests in KHP, effective for the period 17 April 2011 – 26 June 2012.

As of 26 June 2012, under the mandatory offer, the Company entered into legally binding agreements to acquire 21,168,293 ordinary shares of KHP for RUB 2,290 million. The transfers of voting rights and consideration under the agreements were finalized on 17 July 2012. As of 30 June 2012 the liability of RUB 832 million related to unexercised and expired portion of mandatory offer (put option) was derecognised; the excess of RUB 277 million of the derecognised liability over the re-instated amount of non-controlling interests of RUB 555 million increased the Company’s retained earnings.

Acquisition of subsidiaries for six months 2011

OAO Rostvertol (“Rostvertol”)

Rostvertol operates in the manufacturing of helicopters, with the production facilities located in Rostov-on-Don, Russian Federation. On 10 and 11 December 2010, the Company acquired an additional 52.3% interest in Rostvertol, formerly an associate of the Group, for cash consideration of RUB 3,230 million, increasing its ownership to 75.1%. Following this acquisition the Group obtained control over Rostvertol. The purpose of this acquisition was to obtain control over the last independent helicopter producer in the Russian Federation and complete full consolidation of the industry in Russia. 15 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

7. Business combinations and changes in ownership (continued)

Acquisition of subsidiaries for six months 2011 (continued)

This acquisition was accounted for using the acquisition method. The remaining non-controlling interests of 24.9% and the previously held equity interest of 22.8% in Rostvertol were both measured at fair value determined by independent appraiser at the date of acquisition.

In the consolidated financial statements for the year ended 31 December 2010, the acquisition of Rostvertol was accounted for using provisional values, and during 2011, the Group finalised the assessment of fair value. The provisional values previously presented for six months ended 30 June 2011 have been restated in the comparative information presented in the interim condensed consolidated financial statements to reflect the changes from the finalised valuation as follows:

Six months Six months ended ended 30 June 2011 30 June 2011 as previously as restated reported Adjustments Consolidated statements of comprehensive income Selling, general and administrative expenses (11,696) (11,568) 128 Income tax expense 1,229 1,255 (26) Profit and total comprehensive income for the period 2,707 2,809 102

Attributable to: Shareholder of the Company 1,841 1,935 94 Earnings per share 0.00003 0.00003 –

8. Revenue Six months Six months ended ended By customer destination 30 June 2012 30 June 2011 Russian Federation 28,822 20,034 Asia 15,178 11,367 Other CIS countries 6,480 5,579 America 6,038 3,259 Europe 138 1,514 Africa 3,628 585 Other 8 31 Total 60,292 42,369

9. Income tax expense/(benefit) Six months Six months ended ended 30 June 2012 30 June 2011 Current income tax expense 1,413 1,477 Adjustment to income tax of prior periods (29) (17) Total current income tax expense 1,384 1,460 Accrued income tax on dividends – 160 Deferred tax expense/(benefit) 185 (391) Total deferred tax expense/(benefit) 185 (231) Total income tax expense 1,569 1,229

16 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

9. Income tax expense/(benefit) (continued)

The corporate income tax rate in the Russian Federation, the primary location of the Group’s production entities, for the six months ended 30 June 2012 was 20.0% (15.5% in the Perm region where Reduktor-PM is located).

10. Property, plant and equipment

Machinery Land and and Construction- buildings equipment Transport Other in-progress Total

Cost At 1 January 2012 21,170 14,305 2,553 4,261 6,845 49,134 Additions 290 950 39 165 2,703 4,147 Transfers 1,181 1,220 16 89 (2,506) – Acquisitions of subsidiaries – – – – – – Disposals (51) (126) (14) (438) (242) (871) At 30 June 2012 22,590 16,349 2,594 4,077 6,800 52,410

Accumulated depreciation and impairment At 1 January 2012 (5,225) (3,102) (574) (1,446) – (10,347) Depreciation charge (436) (872) (87) (423) – (1,818) Disposals 8 73 9 193 – 283 Impairment (24) – – – – (24) At 30 June 2012 (5,677) (3,901) (652) (1,676) – (11,906)

Carrying value At 1 January 2012 15,945 11,203 1,979 2,815 6,845 38,787 At 30 June 2012 16,913 12,448 1,942 2,401 6,800 40,504

The Group leases machinery and equipment and transport under a number of finance lease agreements. At the end of the lease term the Group takes ownership of the assets or has an option to purchase leased assets at a beneficial price. Finance leases obligations are secured by the lessors’ title to the leased assets.

30 June 31 December 2012 2011 Carrying value of leased property, plant and equipment 1,210 1,788

11. Goodwill

Goodwill is tested for impairment annually (as at 31 December) and when circumstances indicate the carrying value may be impaired. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual financial statements for the year ended 31 December 2011. The Company did not identify any impairment indicators as for 30 June 2012.

17 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

12. Other intangible assets

Capitalised Purchased development software costs and other Total Cost At 1 January 2012 5,078 750 5,828 Additions 1,968 138 2,106 Government grants received (244) – (244) Disposals (91) (9) (100) At 30 June 2012 6,711 879 7,590

Accumulated amortisation At 1 January 2012 (811) (220) (1,031) Amortisation charge (189) (127) (316) Disposals 6 4 10 At 30 June 2012 (994) (343) (1,337)

Carrying value At 1 January 2012 4,267 530 4,797 At 30 June 2012 5,717 536 6,253

13. Other financial assets

30 June 31 December 2012 2011 Bank deposits 1,037 604 Loans issued 306 298 Promissory notes – 116 Other – 4 Total 1,343 1,022 Total non-current other financial assets 150 150 Total current other financial assets 1,193 872

Bank deposits

30 June 31 December Bank name Currency 2012 2011 OAO AKB Donkombank RUB 150 150 OAO AKB Zarechye RUB 505 454 OAO AKB UralFD RUB 200 – OAO VTB, a related party of the Group USD 32 – OAO Bank Saint Petersburg RUB 150 – Total 1,037 604

18 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

14. Available-for-sale securities

The Group’s available-for-sale investments represent investments in listed and unlisted equity securities. These shares are not held for trading purposes and are accordingly classified as available-for-sale. Ownership, 30 June 31 December % 2012 2011 OAO TVTz Rostvertol 25.0 359 359 OAO OPK Oboronprom 0.62 231 231 OAO AKB Zarechie 15.5 168 168 OAO AKB Donkombank 15.0 71 96 OAO AKB MMB Bank of Moscow 0.03 19 18 NPF KVZ – – 32 Other various 29 31 Total 877 935

15. Inventories 30 June 31 December 2012 2011 Raw materials (at cost or net realisable value) 21,445 19,947 Work-in-progress (at cost or net realisable value) 5,670 4,996 Finished goods (at cost or net realisable value) 770 917 Total inventories at the lower of cost and net realisable value 27,885 25,860

16. Cash and cash equivalents 30 June 31 December 2012 2011 Current bank accounts, including: RUB-denominated 6,469 5,431 USD-denominated 1,574 1,676 Euro-denominated 465 487 Bank deposits, including: RUB-denominated 806 4,365 USD-denominated 1,149 32 Other cash and cash equivalents 23 45 10,486 12,036

Bank deposits 30 June 31 December 2012 2011 Bank name Currency Balance Balance OAO Bank VTB RUB 114 33 OAO Bank VTB USD 657 32 OAO Sberbank of Russia RUB – 680 OAO AKB Zarechye RUB 400 530 OAO Bank Saint Petersburg USD 492 – OAO AKB Tatfondbank RUB 150 – ZAO AKB RUB – 101 OAO Gazprombank RUB – 2,500 OAO Rosselhozbank RUB – 300 Other RUB 142 221 T otal 1,955 4,397

19 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

16. Cash and cash equivalents (continued)

All bank deposits classified as cash and cash equivalents have an original maturity of less than three months. The interest rates range between 0.3% and 8.5%.

17. Prepayments and other receivables

30 June 31 December 2012 2011 Non -financial assets Advances paid to suppliers of inventory and services 32,076 30,521 Prepaid commission fee 2,210 2,553 Total non-financial assets 34,286 33,074 Financial assets Other receivables 1,959 1,280 Less: allowance for doubtful other receivables (307) (309) Total financial assets 1,652 971 Total non-current prepayments 1,969 2,337 Total current prepayments and other receivables 33,969 31,708

18. Dividends

During the six month ended 30 June 2012 the Group entities declared the following dividends attributable to non-controlling interests:

Six months Six months ended 30 June ended 30 June 2012 2011 OAO Ulan-Ude Aviation Plant – 282 OAO Kazan Helicopter Plant 309 123 OAO Stupino Machine Production Plant 19 12 OAO Reduktor-PM 10 6 OAO Rostvertol 40 – OAO AAC PROGRESS 3 Total 378 426

During six months ended 30 June 2012 the amounts of dividends of RUB 308 million related to the shares subject to the mandatory offers for buy-out are recognised as interest expense (six months ended 30 June 2011: 0).

The Group declared dividends attributable to the shareholder of the Company in the amount of RUB 489 million (six months ended 30 June 2011: 0).

20 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

19. Loans and borrowings

Interest 30 June 2012 31 December 2011 rate Rate, % Balance Rate, % Balance

Secured bank loans, including: RUB-denominated OAO Sberbank, related party Fixed 5-11% 19,198 5-10% 14,455 OAO Alfa Bank Fixed 9-10% 3,830 9-10% 3,830 OAO AKB Rosbank Fixed 9-11% 2,313 9-12% 3,500 OAO Gazprombank, related party Fixed 9% 2,459 9% 1,143 ZAO AKB Novikombank Fixed 10-12% 2,508 10-12% 2,388 OAO Bank VTB, related party Fixed 7-10% 3,864 7-9% 4,816 ZAO KB Nats Invest Prom Bank Fixed – – 10% 50 OAO AKB Ural FD Fixed 10% 200 10% 200 OAO AKB Zarechye, related party Fixed 9% 235 9% 235 Vnesheconombank, related party Fixed 9-12% 2,381 9-12% 2,381 Other Various 9-10% 2,394 9-13% 1,873

USD-denominated OAO Sberbank, related party Fixed 8% 1,532 8-9% 4,862 OAO Promsvyazbank Fixed 9% 197 7-10% 493 OAO Bank Saint Petersburg Fixed – – 8% 1,610 Other Various 5-6% 523 5-7% 532

EURO-denominated OAO Bank Saint-Petersburg Fixed 8% 2,314 8-9% 1,875 OAO AKB Rosbank Fixed 7% 1,653 7% 1,402 OAO Gazprombank, related party Fixed 7% 879 4-7% 762 OAO Sberbank, related party Fixed 3-8% 212 3-8% 313 Other Fixed 7-8% 677 7-8% 407

Unsecured loans and borrowings, including: RUB-denominated OAO Bank VTB, related party Fixed 0-10% 622 0-8% 486 OAO Sberbank, related party Fixed 7-10% 5,341 7-8% 2,518 Mustoe limited, related party Fixed 9% 310 9% 500 Oboronprom, related party Fixed 0-7% 259 0-7% 184 OAO Metkombank Fixed 8% 150 8% 150 Other Fixed 0-9% 487 0-12% 422

USD-denominated OAO Bank VTB, related party Fixed 6% 7,384 6% 2,576 Mustoe limited, related party Fixed 7% 184 7% 181

Accrued interest 254 316 Total 62,360 54,460

Long-term portion of loans and borrowings 40,069 35,142 Current portion repayable in one year and shown under current liabilities 22,291 19,318

21 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

19. Loans and borrowings (continued)

The following items of property, plant and equipment and inventories were pledged to secure loans and borrowings: 30 June 31 December 2012 2011 Inventories 466 686 Property, plant and equipment 549 1,788 Total 1,015 2,474

Certain numbers of shares of the Group’s (subsidiaries) have been pledged to secure bank loans and borrowings granted to the Group: 30 June 31 December 2012 2011 OAO Kazan Helicopter Plant 34,344,684 33,200,000 OAO Ulan-Ude Aviation Plant 31,666,919 Total 66,011,603 33,200,000

20. Amounts due under the Military Purchase Program construction contracts

In 2011, in connection with the 2011-2020 Military Purchase Program of the Russian Federation (“the Military Purchase Program”) the Group’s subsidiaries entered into long-term contracts with the Ministry of Defence of the Russian Federation (“the Ministry of Defence”) to produce and deliver military helicopters over the period of 2011-2020. Under these contracts, the substantial portion of amounts due from the Ministry of Defence is deferred and paid on or after the 4-year period following the delivery dates. Under the Program the Group’s subsidiaries entered into credit facility agreements linked to the aforementioned long-term contracts with certain state-owned banks. The deferred amounts to be received from the Ministry of Defence under the long-term agreements will only be used to reduce the outstanding balances of the credit line facilities. Obligations under these credit line facilities are fully secured by the guaranties provided by the Ministry of Finance of the Russian Federation (“the Ministry of Finance”). The Group will be relieved from any obligations to pay the outstanding balances of the credit line facilities if the Ministry of Defence defaults or delays payments beyond the credit line facilities tenors and the amounts due under the credit line facilities, as secured by the guarantee, will be paid by the Ministry of Finance. Interest expenses incurred on these credit line facilities are fully reimbursed by the Ministry of Defence.

The amounts due under the Military Purchase Program construction contracts are comprised of the following: 30 June 31 December 2012 2011 A mounts received under construction contracts (48,760) (30,739) Amounts due from customers under the Military Purchase construction contracts 14,708 7,369 Amounts billed under the Military Purchase Program 18,690 9,575 Amounts due under the Military Purchase Program construction contracts (15,362) (13,795)

22 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

20. Amounts due under the Military Purchase Program construction contracts (continued)

As at 30 June 2012 and as at 31 December 2011, the amounts drawn down under the credit line facilities secured by the Russian Federation under the Military Purchase Program presented as advances received under construction contracts are as follows:

30 June 2012 31 December 2011 Rate, Outstanding Rate, Outstanding State-owned bank name Currency % balance % balance OAO Bank VTB, related party RUB 8.0-10.15 26,938 8.0- 8.3 17,058 OAO Sberbank, related party RUB 8.4-9.1 21,103 8.4 12,962 OAO Vnesheconombank, related party RUB 9.0 719 9.0 719 Total 48,760 30,739

21. Related parties

Related parties include controlling shareholder and key management personnel entities over which Group’s key management personnel exercises significant influence and entities under common ownership and control of the Government of the Russian Federation.

In the ordinary course of their business, the Group entities enter into various sale, purchase and service transactions with related parties. These transactions are primarily with state bodies of the Russian Federation, other Government controlled entities, or in areas the Government is involved in the business. These transactions are on terms that may not be available to third parties. The repayment terms related to these transactions are consistent with those paid by third parties. In addition, the Group has received loans from and made deposits with related parties, the terms of which are disclosed in the related notes to these interim condensed consolidated financial statements.

Transactions between the Group’s entities, which are related parties, have been eliminated in full in these interim condensed consolidated financial statements and are not disclosed in this note.

During the six months period the Group had the following significant transactions and balances with the Government of the Russian Federation, parties under control of the Government of the Russian Federation and other related parties (as defined below).

Accounts receivable* Advances paid Cash and deposits Other investments 30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December 2012 2011 2012 2011 2012 2011 2012 2011

Group 1 4,502 3,950 23,193 19,471 6,866 7,907 122 205 Group 2 60 40 43 32 2,838 1,725 196 – Group 3 46 5 – – – – 21 35 Total 4,608 3,995 23,236 19,503 9,704 9,632 339 240

Advances received, Loans and borrowings, financial including Military Purchase liabilities and obligations Accounts payable Program* under finance lease* 30 June 31 December 30 June 31 December 30 June 31 December 2012 2011 2012 2011 2012 2011

Group 1 9,978 5,618 27,123 22,416 46,178 36,401 Group 2 49 51 3 2 252 252 Group 3 38 50 – – – – Total 10,065 5,719 27,126 22,418 46,430 36,653 * Certain amounts do not correspond to the consolidated financial statements as at 31 December 2011 and for the

year then ended and reflect reclassifications made as detailed in note 3. 23 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

21. Related parties (continued)

Six months ended 30 June 2012 Sales of goods and services, including Military Purchase of Purchase goods and Finance Interest Program services costs income Group 1 26,479 12,101 1,304 126 Group 2 89 81 11 9 Group 3 64 1 – – Total 26,632 12,183 1,315 135

Six months ended 30 June 2011 Purchase of Sales of goods goods and Finance Interest and services services costs income Group 1 19,162 7,517 1,197 85 Group 2 29 125 – – Group 3 – 27 – – Total 19,191 7,669 1,197 85

Group 1 consists of the Government of the Russian Federation and other entities under common control of the Government of the Russian Federation. Group 2 consists of entities over which the Group’s management exercises significant influence. Group 3 consists of associates of the Group.

Remuneration of the Group’s key management personnel

During the six months ended 30 June 2012 and 2011 key management personnel of the Group (who are considered to be the General Director, Deputy General Directors, Directors of key departments and Members of the Board of Directors of the Company) received compensation of RUB 38 million and RUB 24 million, respectively. Key management personnel received only short- term employee benefits.

22. Commitments and contingencies

Contractual commitments

In the course of carrying out its operations and other activities, the Group enters into various agreements which require the Group to invest in or provide financing to specific projects. In the opinion of the Group’s management, these commitments are entered into under standard terms, which are representative of each project’s feasibility and should not result in unreasonable losses for the Group.

Capital commitments

At 30 June 2012, the Group had capital commitments including both contractual commitments and capital expenditures provided for in the annual budget for the year ending 31 December 2012 in the amount of RUB 4,627 million for property, plant and equipment and RUB 3,448 million for development cost (31 December 2011: to RUB 4,627 million and RUB 3,448 million respectively).

24 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

22. Commitments and contingencies (continued)

Operating leases: Group as a lessee

The majority of land plots on which the Group’s production facilities are located are owned by the state.

The Group therefore leases the land through operating lease agreements, which expire in different years through 2057. According to the terms of the lease agreements rent fees are revised annually by reference to an order issued by the relevant local authorities. The Group entities have a renewal option at the end of each lease period and an option to buy land at any time, at a price established by the local authorities. The Group also leases other property, plant and equipment. The respective lease agreements have an average term of 1 to 6 years and generally do not have a renewal option at the end of the term. There are no restrictions placed upon the Group by entering into these agreements.

Future minimum rental expenses under non-cancellable operating leases are as follows:

Due within one year 199 Due from second to fifth year 521 Due thereafter 0 Total 720

Social commitments

The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of its employees. This includes making contributions to the development and maintenance of housing, hospitals, transport services, recreation and other social needs in the geographical areas in which the Group operates.

Litigation

The Group has a number of claims and litigations relating to sale and purchases of goods and services. Management believes that none of these claims, individually or in aggregate, will have a material adverse impact on the Group.

Operating environment

Emerging markets such as the Russian Federation are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. As has happened in the past, actual or perceived financial problems or an increase in the perceived risks associated with investing in emerging economies could adversely affect the investment climate in the Russian Federation and Russia’s economy in general.

Laws and regulations affecting businesses in the Russian Federation continue to change rapidly. Tax, currency and customs legislation within the Russian Federation are subject to varying interpretations, and other legal and fiscal impediments contribute to the challenges faced by entities currently operating in the Russian Federation. The future economic direction of the Russian Federation is largely dependent upon economic, fiscal and monetary measures undertaken by the Government, together with legal, regulatory, and political developments.

25 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

22. Commitments and contingencies (continued)

Operating environment (continued)

The global financial turmoil that has negatively affected Russian’s financial and capital markets in 2009 and 2010 has receded and Russia’s economy returned to growth in 2011. However, significant economic uncertainties remain. Adverse changes arising from systemic risks in global financial systems, including any tightening of the credit environment or from decline in the oil and gas prices could slow or disrupt Russia’s economy, adversely affecting the Group’s access to capital and cost of capital for the Group and, more generally, its business, results of operations, financial condition and prospects.

The Russian Federation is facing a relatively high level of inflation and according to the Government’s statistical data consumer price inflation for the six months ended 30 June 2012 and the years ended 31 December 2011, 2010 and 2009 was 3.5%, 6.1%, 8.8% and 8.8%, respectively.

Because Russia produces and exports large volumes of oil and gas, Russia’s economy is particularly sensitive to the price of oil and gas in the world market that fluctuated significantly during 2009-2012. Although recently years there has been a general improvement in economic conditions in the Russian Federation, it continues to display certain characteristics of an emerging market. These include, but are not limited to, currency controls and convertibility restrictions, relatively high level of inflation and continuing efforts by the Government of the Russian Federation to implement structural reforms.

Tax contingencies in the Russian Federation

The tax system in the Russian Federation is at a relatively early stage of development, and is characterised by numerous taxes, frequent changes and inconsistent enforcement at federal, regional and local levels. The Government of the Russian Federation has commenced a revision of the tax system and passed certain laws implementing tax reform. The new laws reduce the number of taxes and overall tax burden on businesses and simplify tax legislation. However, these new tax laws continue to rely heavily on the interpretation of local tax officials and fail to address many existing problems. Many issues associated with practical implication of new legislation are unclear and complicate the Group’s tax planning and related business decisions. In terms of Russian tax legislation, authorities have a period of up to three years to re-open tax declarations for further inspection. Changes in the tax system that may be applied retrospectively by authorities could affect the Group’s previously submitted and assessed tax declarations.

While the Group’s management believes that it has adequately provided for tax liabilities based on its interpretation of current and previous legislation, the risk remains that tax authorities could take differing positions with regard to interpretive issues. This uncertainty may expose the Group to additional taxes, fines and penalties that could be significant.

The Group's management believes that its interpretation of the relevant legislation is appropriate and is in accordance with the current industry practice and that the Group's tax, currency and customs positions will be sustained. However, the interpretations of the relevant authorities could differ and the maximum effect of additional taxes, fines and penalties on these consolidated financial statements, if the authorities were successful in enforcing their different interpretations, could be significant, and amount up to RUB 218 million.

Insurance

The Group’s entities do not have full coverage for property damage, business interruption and third party liabilities. Losses from business interruption and third party liabilities could have a material adverse effect on the Group’s operations and financial position. 26 Open Joint Stock Company Russian Helicopters

Notes to the interim condensed consolidated financial statements (continued)

23. Events subsequent to the reporting date

Share capital

At 21 June 2012 Oboronprom, the shareholder, approved and the Company, subsequently to 30 June 2012, issued additional 279,116 ordinary shares with par value of RUB 1.

Subsidiaries

KHP

On 14 August 2012 in accordance with Russian Federal Law on Joint Stock Companies the Company made a mandatory offer of RUB 109.56 per ordinary share to acquire the remaining non- controlling interest of KHP valid till 21 September 2012.

Military Purchase Program construction contracts

After the end of the reporting period the Group drew down approximately RUB 5,805 million under the credit line facilities secured by the Ministry of Finance of the Russian Federation.

Borrowings 30 June From 30 June 2012 Interest 2012 till issuance date rate Rate, % Balance Received Disposed Balance

Secured bank loans, including: KVZ RUB-denominated Sberbank, related party Fixed 5-11% 19,198 3,630 471 22,357 Alfa bank Fixed 9-10% 3,830 – – 3,830 Rosbank Fixed 9-11% 2,313 150 1,097 1,366 Gazprombank, related party Fixed 9% 2,459 235 – 2,694 Novikombank Fixed 10-12% 2,508 – – 2,508 VTB, related party Fixed 7-10% 3,864 1,085 1,025 3,924 UralFD Bank Fixed 10% 200 – – 200 Zareche, related party Fixed 9% 235 – – 235 Vneshekonombank, ralated party Fixed 9-12% 2,381 485 – 2,866 Other Various 9-10% 2,394 627 – 3,021

Sberbank, related party Fixed 8% 1,532 11 728 815 Promsvyazbank Fixed 9% 197 2 101 98 Other Various 5-6% 523 133 1 655

EURO-denominated Bank Saint-Petersburg Fixed 8% 2,314 54 99 2,269 Gazprombank, related party Fixed 7% 879 – 38 841 Sberbank, related party Fixed 3-8% 212 56 3 265 Rosbank Fixed 7% 1,653 39 71 1,621 Other Fixed 7-8% 677 7 425 259

Unsecured loans and borrowings, including: RUB-denominated VTB, related party Fixed 0-10% 622 663 26 1,259 Sberbank, related party Fixed 7-10% 5,341 4,496 403 9,434 Mustoe limited Fixed 9% 310 – – 310 Oboronprom, related party Fixed 0-7% 259 – – 259 Metcombank Fixed 8% 150 – – 150 Other Fixed 0-9% 487 50 626 (89)

USD-denominated Mustoe limited Fixed 7% 184 184 VTB, related party Fixed 6% 7,384 132 1,360 6,156 Total 62,106 11,855 6,474 67,487

27